Although the 2016 house price index for December indicates growth in property values, the beginning of the brexit process in March 2017 castes doubts over the sector’s growth.
According to Halifax, December 2016 saw the most rapid rise in property value since March but uncertainty surrounding the Brexit process could well slow growth back down – affecting the economy in general. On average, house prices increased by 1.7% in December, an increase of 0.6% from November. In annual terms, December reflected a 6.5% increase, versus 6% for November – with the average house price now standing at £224,484.
“Slower economic growth, pressure on employment and a squeeze on spending power, together with affordability constraints, are expected to reduce housing demand during 2017,” explained Martin Ellis, housing economist at Halifax.
“UK house prices should, however, continue to be supported by an ongoing shortage of property for sale, low levels of housebuilding, and exceptionally low interest rates.
“Overall, annual house price growth nationally is most likely expected to slow to 1-4% by the end of 2017. The relatively wide range for the forecast reflects the higher than normal degree of uncertainty regarding the prospects for the UK economy this year.”
Current schedules indicate that the UK government will trigger Article 50 by the close of March 2017, which will initiate a negotiation process for exiting the European Union (EU). Future interactions between the UK and EU, considered a pivotal trading partner, remain unclear.
“Looking ahead, the already high level of house prices is likely to curtail borrowers’ ability to increase the size of their mortgage advance materially further, meaning it is unlikely that higher borrowing will chase house prices higher,” said Capital Economics, a research consultancy.
“And while we are relatively upbeat on the prospects for the UK economy this year, we do see the improvement in the labour market losing steam.
“That said; there remains a distinct shortage of homes for sale. And with surveyors still not reporting any increase in sales instructions, limited supply will remain a key factor underpinning prices. Therefore, while we expect house price growth to cool, it is unlikely to fall much below 2% y/y by the end of this year.”
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